A Blockbuster Falls Apart

In September 2020, US graphics chip giant NVIDIA (NVDA) agreed to purchase Arm Holdings from Japan’s SoftBank for $40 billion in what would have been the chip market’s biggest deal ever. Arm is based in the UK and is a chip-design specialist. The deal faced immediate opposition from regulators and competitors amid antitrust concerns, and in December of last year the FTC sued to block the transaction from being completed.

Federal officials argued NVIDIA would have been able to control new chip designs and affiliated technology if the deal had been completed. A joint statement yesterday from the chip-maker and SoftBank cited “regulatory challenges” when announcing the deal had been abandoned. SoftBank indicates they intend to take Arm public instead.

Regulators Remain Wary of Mega Chip Deals

Chip deals of this size and scope have had difficulty getting approval from regulators in the past. In 2018, Broadcom’s (AVGO) attempt to take over fellow-chip giant Qualcomm (QCOM) was blocked due to national-security concerns raised by US officials. That same year, Chinese regulators refused to approve Qualcomm’s plans to purchase Dutch chip-maker NXP Semiconductors (NXPI), and the deal was scuttled.

Analysts say the failure to complete this latest deal has a lot to do with Arm’s role in the marketplace. Some describe the company as akin to a “Swiss bank” of the chip industry in that the company doesn’t have favored clients and offers up designs to all companies. Apple (AAPL), Qualcomm, and Advanced Micro Devices (AMD) are among the major tech companies that rely on Arm’s behind-the-scenes expertise. SoftBank and NVIDIA had vowed not to change this aspect of Arm’s business model.

Arm Remains Attached to Softbank, NVIDIA Pivots

The abandoned deal is costly for NVIDIA, which loses out on the $1.25 billion it forked over as prepayment. SoftBank has owned Arm for six years and has considered taking it public before. Analysts say the chip design company has struggled to gain traction under the bank’s ownership.

For NVIDIA the deal represented a desire to push beyond its existing niche in video games, AI, and cryptocurrency mining. The next area of diversification may end up being the metaverse, as NVIDIA already offers software that allows users to create artificially intelligent avatars that users can interact with digitally. The failure to acquire Arm could further cement metaverse investment plans, all while regulators continue to make acquisitions difficult.

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